Samsung’s battery-making division is now widely believed to be responsible for supplying unsafe batteries for the Galaxy Note 7 even though the company hasn’t officially confirmed that. It’s now exclusively sourcing Note 7 batteries from China’s ATL which was previously only responsible for 30 percent of the supply for the company’s latest flagship while Samsung SDI took the lion’s share at 70 percent. Units with ATL batteries were only meant for China which is why customers in that country are not affected by the global recall. Market insiders are of the view that Samsung’s increasing reliance on its affiliate companies caused Samsung SDI to slack off on Note 7 batteries, costing billions in damage to the company’s kitty, market value and brand value.

Samsung SDI was responsible for a quarter of the world’s compact rechargeable battery market last year, it clinched the first position with rivals LG Chem, Panasonic and ATL following behind with around 10 percent of the market each. One big reason for Samsung SDI’s lead was sales to its affiliates. Nearly 32 percent of the company’s revenues were generated from sales to Samsung affiliates in the first half of this year and it was selected to supply 70 percent of the batteries meant for Samsung’s latest and greatest flagship handset.

The assurance of business from its affiliates is what’s believed to have caused Samsung SDI to lose its advantage in developing cutting-edge technologies. Rivals LG Chem and ATL quickly switched to pouch-type batteries as demand surged while Samsung SDI kept creating stick-type batteries as its biggest customers within the Samsung family had not caught on that trend yet.

Samsung SDI finally started developing pouch-type batteries to meet demand from Samsung Electronics for the Galaxy Note 7 but they were not up to the mark. It proved a tall order for the battery company to create a unit which could properly function inside the new flagship’s slim and waterproof design. Another reason for this entire debacle is believed to be the layoffs at Samsung SDI which were a cost-cutting measure. The staff has declined from 7,408 in late 2015 to 6,937 as of June 2016. At least one source toldThe Chosun Ilbo that these layoffs were “at least partly responsible for the battery defects.”